Understanding the molecular mechanisms that lead to insulin resistance, and consequently to type 2 diabetes, is essential for designing novel therapies for the treatment of these debilitating diseases. Obesity is a major pathology underlying these disorders. Previously we have shown that, in obese animals, increased endoplasmic reticulum (ER) stress and activation of unfolded protein response (UPR) signaling play a central role in development of these pathologies;however, despite extensive research, our understanding of the mechanisms that underlie development of ER stress and the UPR in obesity remains elusive. We have identified X-Box Protein 1 (XBP1) as a key regulator of ER stress in obesity conditions. Our recent findings implicate p85&#945;and p85&#946;, the regulatory subunits of Phosphatidyl Inositol 3-Kinase (PI3K), as obligatory partners of the spliced form of X-Box protein-1 (XBP1s), and demonstrate that both subunits are required for the translocation of XBP1s to the nucleus. We have also documented that insulin increases the nuclear migration of XBP1s by stimulating the binding of either p85 subunit to XBP1s. Moreover, we document that XBP1s migrates to the nucleus during fast-refeeding conditions and, surprisingly, that this migration pattern is completely absent in the liver of obese mice. These findings indicate that obesity creates a condition in the liver similar to that resulting from XBP1s deficiency. Co-IP studies show that the interaction between XBP1s and p85 is intact in lean mice, but is missing in obese mice. More importantly, and contrary to the current dogma, overexpression of p85alpha and p85beta in the liver of obese mice reinstates the ability of XBP1s to migrate to the nucleus, greatly reduces ER stress, brings glucose tolerance back to normal, and re-establishes euglycemia in severely diabetic ob/ob mice. Building on these novel findings, we now propose to 1) determine the role of XBP1s in the increased insulin sensitivity that results from a single deficiency of p85alpha or p85beta, 2) investigate the role of a newly identified activator of XBP1s, and 3) explore the role of a factor that inhibits XBP1s, in the development of insulin resistance and type 2 diabetes in obesity.